Bidding War for G4S Takeover Comes to a Close

G4S logo

2 February 2021 saw a bidding war for G4S between Allied Universal (Allied) and GardaWorld come to a close. Allied’s bid of GBP 3.8 bn at 245 pence per share, backed by private equity firm Warburg Pincus and Canadian pension fund Caisse de Depot et Placement du Quebec, won the auction as GardaWorld did not increase its offer of 235 pence per share.

G4S’ board has supported Allied’s bid and has made a recommendation for its shareholders to vote to accept the acquisition. The merger is set to result in a private security services Goliath with worldwide reach.

The 21st century has seen a marked increase in public fear of terror attacks which has directly propelled the rise of the global security market. Allied and GardaWorld are two of the biggest private companies in this space and are based out of the USA and Canada, respectively.

Acquiring UK-listed global security company G4S would lead to either company becoming leaders in this domain.

G4S has been plagued with many maladies in the recent past. The public company has faced criticism after being stripped of several government contracts, including running HM Prison Birmingham following riots. It has also been facing allegations of systematic human rights violations against its workforce in the UAE and Qatar.

These claims have caused Norway’s sovereign wealth fund to blacklist G4S shares, gauging investing in G4S as an “unacceptable risk”. In G4S’ 2019 annual report, G4S said that it would implement a due diligence programme to ensure that human rights are respected, and business ethics are adhered to, starting with its operations in Europe and the Middle East.

2020 was a tumultuous period for the economy, and G4S saw its share price being directly impacted by this. GardaWorld made a hostile bid of GBP 2.95 bn to take over G4S. This was ultimately rejected, with G4S stating that the offer made was highly opportunistic in nature. Allied took a different route and have been in acquisition talks with G4S’ management for months now before finally outbidding GardaWorld on Monday.

GardaWorld has gone on record saying that while it believes there is no better owner for G4S, it is not prepared to overpay for a company facing as many scandals. GardaWorld has now shifted its sights to other opportunities it deems as being less risky.

Directors from both G4S and Allied have confidently stated that the combined company will create “a world-leading integrated security business with revenues of GBP 12.8 bn”. While G4S employs 533,000 staff across 85 countries, it has its largest business in the USA. This facet is sure to assist the synergy between USA-based Allied and G4S. However, as part of the merger, Allied will also be acquiring G4S’ inconsistent earnings growth, its reported (as of mid-2020) GBP 1.56 bn in net debt, and recent reputation damage.

The fluctuation in G4S’ share price through the process was interesting to note. While G4S’ shares rose by 80% since the start of the stand-off between Allied and GardaWorld, it fell by 10% when GardaWorld refused to raise what turned out to be its final bid. This highlights how acquisitions can lead to share prices becoming more dynamic than usual and that no trajectory is set in stone until the acquisition is actually completed.

The trajectory this deal will take merits close monitoring as G4S still possesses public contracts. Regulators can always block the acquisition if they judge that a national industry might be adversely affected. Something similar was seen late last month as the French government denied Carrefour’s takeover by Canada’s Alimentation Couche-Tard in an effort to preserve the country’s food security and sovereignty.